chapter eight Economic and Socioeconomic Forces McGraw-Hill/Irwin International Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc All rights reserved Learning Objectives State the purpose of economic analysis Identify different categories based on levels of national economic development and the common characteristics of developing nations Recognize the economic and socioeconomic dimensions of the economy and different indicators used to assess them Discuss the importance of a nation’s consumption patterns and the significance of purchasing power parity 8-3 Learning Objectives Discuss the new definition of economic development, which includes more than economic growth Explain the degree to which labor costs can vary from country to country Discuss the significance for businesspeople of the large foreign debts of some nations 8-4 International Economic Analyses (Table 8.1) Economic Analysis When a firm enters overseas markets, economic analyses become more complex 8-5 International Economic Analysis Sources for Economic Information The Commercial officers in embassies The World Bank The United Nations The International Monetary Fund The Organization for Economic Cooperation and Development 8-6 Levels of Economic Development • Developed – A classification for all industrialized nations, which are the most technically developed • Developing – A classification for lower income nations, which are less technically developed 8-7 Levels of Economic Development • Newly industrialized economies (NIEs) – The fast-growing upper-middle-income and high income economies of South Korea, Taiwan, Hong Kong, and Singapore • Newly industrializing countries (NICs) – The four Asian Tigers and the middleincome economies such as Brazil, Mexico, Malaysia, Chile, and Thailand 8-8 Dimensions of the Economy Important Economic Indicators Gross National Income (GNI) GNI/capita Income Distribution Private consumption Unit labor costs Exchange rates Inflation rates Interest rates 8-9 Dimensions of the Economy • Gross National Income (GNI) – The measure of the income generated by a nation’s residents from international and domestic activity – Preferred over GDP • GNI/Capita – Used to compare countries with respect to the well-being of their citizens and to assess market or investment potential 8-10 Dimensions of the Economy Unit labor costs Total direct labor costs divided by units produced Countries with slower-rising unit labor costs attract management’s attention 8-16 Dimensions of the Economy • Reasons for relative changes in labor costs – Compensation – Productivity – Exchange rates • International firms must keep close watch on labor rates around the world 8-17 Dimensions of the Economy • Large international debts of middle- and low-income nations affect multinational firms – When foreign exchange must be used for loan repayment, import of components used in local production is reduced – Local industries must manufacture these components or production must stop 8-18 Major International Debtors 8-19 Socioeconomic Dimensions • Total Population – Most general indicator of potential market size – Population size, used alone, is not good indicator of economic strength and market potential 8-20 Socioeconomic Dimensions • Age Distribution – Developing countries have more youthful populations than industrial countries – Birthrates decreasing worldwide – Population of developing countries accounts for over three-quarters of world’s population 8-21 Population Growth 8-22 Forces Reducing Birthrates • Government supported family planning programs • Improved levels of health, education along with enhanced status for women • More even distribution of income • Greater degree of urbanization 8-23 Concern: Birthrate Decline • Concern in Developed Nations: Europe • An increasing number of young Europeans not marrying • Marriages are later, with fewer children • By 2025, the present percent unemployment rate in the EU will be replaced by a shortage of workers 8-24 Concern: Birthrate Decline • Concern in Developed Nations: Japan – By 2025, Japan’s population aged 65 and older will make up 26.8 percent of total population – By 2025, Japan will have twice as many old people as children 8-25 Socioeconomic Dimensions • Population Density – A measure of the number of inhabitants per area unit – product distribution and communications simpler and cheaper in densely populated countries 8-26 Socioeconomic Dimensions • Population Distribution – A measure of how the inhabitants are distributed over a nation’s area – Changing population distribution: ruralto-urban shift 8-27 Rural-to-Urban Shift (Table 8.8) 8-28 Socioeconomic Dimensions • Increase in the number of working women – May require marketers to alter promotional mix – Results in larger family incomes – Results in a greater market for convenience goods 8-29 Population Distribution 8-30 ... complex 8-5 International Economic Analysis Sources for Economic Information The Commercial officers in embassies The World Bank The United Nations The International Monetary Fund The Organization... socioeconomic dimensions of the economy and different indicators used to assess them Discuss the importance of a nation’s consumption patterns and the significance of purchasing power parity... State the purpose of economic analysis Identify different categories based on levels of national economic development and the common characteristics of developing nations Recognize the economic